Presently small businesses (Turnover less than $2 million) are able to depreciate and write off assets under the Simplified Tax System. The system allows assets worth under $1,000 to be claimed immediately as a deduction instead of having to claim just a portion each year for a set number of years. The Treasurers announcement has proposed this be increased to $20,000 until 30 June 2017.
- What is this and what does it mean to me?
All this means is that if you purchase a piece of equipment or other asset under $20,000 which normally would need to be depreciated instead of having to claim this over say 6 or 8 years you can have the deduction straight away (like you would fuel for your car or a telephone account).
- Do I get an extra tax benefit?
Essentially you are claiming the same deduction overall however the fact you can claim this year could be more beneficial to you, this will depend on your own individual situation. If you are planning to be in business for the next 6 to 8 years the long term tax benefit will most likely be same. However instead of saving a small amount of tax over a number of years you get to save a large amount straight away.
- Does this mean I get $20,000 off my tax if I purchase one or multiple assets?
No, This is not a tax offset but rather just allows a deduction against your income. The tax you are saving will depend on your income bracket. A company will receive a tax saving of 30% of the asset cost as this tax rate is set however as an individual (Sole Trader, Partnership, Trust) you could save anywhere from nil (if your income is below $20,000) or 47% (if your personal income is above $180,000)
- Could this work against me?
If you do not have much income in the current year therefore do not need the immediate deduction you cannot choose to depreciate instead so there is a disadvantage for those not needing the deduction straight away.
- Can I buy something worth more than $20,000 and just claim the $20,000 then depreciate the rest?
No, the asset must be worth less than $20,000 and the ATO have stated they will be monitoring items close to the $20,000 limit to ensure people are not purchasing separate parts of the same item to keep it under the $20,000 (ie- buying a car without the tyres, seats and steering wheel then paying for them in a separate transaction)
- The Treasurer announced this new threshold is effective now, can I go and buy my asset?
Although the proposal has been made as part of the budget tax legislation on the matter is still yet to be enacted. What this means is although this all may go through and be legislated there is also a chance it may not. If it is legislated the change will be backdated to the budget night (12/05/2015 at 7:30pm). You can go and buy your asset now however there is a risk the legislation may not pass and you may need to depreciate the asset as normal.
For a more detailed explanation have a read of “Growing Jobs and Small Business” on the ATO website